Economic Survey 2017-18, tabled in Parliament on Monday by Union Minister for Finance and Corporate Affairs, Arun Jaitley, betrays cautiousness on growth, indicating that the economy continues to be in a state of repair, and still has some way to go before growth rates move up to 8 per cent-plus levels.

In a year that will see the full benefit of the goods and services tax (GST) implementation accrue, where a large part of the rate rationalisation or tweaking has already been done and issues related to processes have largely been ironed out, the Economic Survey says, India’s real gross domestic product (GDP) will grow between 7.0 and 7.5 per cent in 2018-19 versus an estimated growth of 6.75 per cent for 2017-18. That is an increase of just 75 basis points, at the upper end of the band. In fact, many experts peg India’s potential at a much higher level.

These growth estimates also seem pale in the light of the fact that global economic growth is rising. The IMF (International Monetary Fund), in a January 22 release says, “Global economic activity continues to firm up. Global output is estimated to have grown by 3.7 per cent in 2017, which is 0.1 percentage point faster than projected in the fall. The pick-up in growth has been broad-based, with notable upside surprises in Europe and Asia. Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 percentage point to 3.9 percent. The revision reflects increased global growth momentum and the expected impact of the recently approved US tax policy changes.”

While there are some headwinds to global growth as well, the release further adds, "The cyclical upswing underway since mid-2016 has continued to strengthen. Some 120 economies, accounting for three quarters of world GDP, have seen a pick-up in growth in year-on-year terms in 2017, the broadest synchronized global growth upsurge since 2010.”

In India's case, about a fifth of its GDP is accounted for by exports. But, higher global growth may not benefit the country proportionately. Protectionist policies in many global economies and a strong rupee are some impediments here.

Nevertheless, in this context of recovery in global economic growth and many of India’s headwinds (note ban and GST) behind, the Economic Survey’s growth figures for 2018-19 are a bit of disappointment.

The mood, perhaps is also reflecting in the stock and debt markets’ reaction. The S&P BSE Sensex gave up some 150 points from its intra-day high to close with net gains of 233 points at 36,283.25 on Monday. The yield on the 10-Year Government Securities was up about 15 basis points.

The cautious stance also takes into account the various headwinds, such as crude oil, that the country faces. The commodity was a tailwind until mid-2017, after which prices began rising. The Chief Economic Advisor to the government, Arvind Subramanian, says oil prices are a worry. He said estimates indicate that every $10 increase in oil prices will impact GDP growth by 0.2-0.3 per cent, increase current account deficit by 0.4 per cent of GDP ($10 billion) and push up inflation. Oil is already 16 per cent higher as compared to a year ago, and global agencies estimate it to rise another 12 per cent going ahead.

All this would mean that the government’s resources could also see some strain, if it has to avoid any damage to the country’s economy and the common man. Higher inflation also means that interest rates could remain elevated, hurting investment sentiment of corporates and finance-led consumption.

Going into a year with eight state elections and the general elections in 2019, the government is likely to keep its focus on the common man besides, the agriculture economy which has already been under stress. On the other hand, there’s also a need to keep its fiscal deficit targets in mind. Any adventure on this front could significantly hurt the sentiment of bond markets, besides putting away government’s efforts of 3-4 years to put its house in order. Although the government has some avenues such as non-tax revenues (including divestment in public sector companies), the same also requires the markets to remain elevated. In 2017-18, it is estimated that the government would collect Rs 1 trillion (Rs 1 lakh crore) from divestment, etc.

Having said that, the situation is rather tough than easy. “It would be a challenging job for the government to maintain a balance between fiscal discipline and boosting economic growth. A likely increase in subsidies due to higher oil prices, ambiguity over growth in tax collections and rising inflation are headwinds going ahead,” says a head of a domestic brokerage.

What this also means that the market estimates of an over 15 per cent growth in earnings for FY19 may not materialise, unless demand surprises on the upside and headwinds ease. So, at the current record high levels and trailing price-earnings valuation of 26.4 for S&P BSE Sensex, the risks are also much higher than ever.